The government should take effective steps to address hyper competition in the market, make mergers and acquisition rules as way of exit more lucrativeGulveen Aulakh | ETTelecom | Updated: October 06, 2017, 18:38 IST

NEW DELHI: The government should take effective steps to address hyper competition in the market, make mergers and acquisition rules as way of exit more lucrative, and move away from the view of treating the sector as a source for maximising revenue on a policy level as a policy, said senior industry executives and analysts.

“The proposed merger is unravelling because of debt issues, which is why we've been saying that address the issue of debt, and revenue, because the flip side of debt is your ability to repay… Enhancing the revenue stream can fix the ability to repay. Those are the moving pieces which the government has to address with policy,” said Rajan Mathews, director general of Cellular Operators Association of India (COAI).

“Policy of the government should move from maximising revenue extraction from the industry to enhancing the financial health and stability of the industry,” he added.

The comments came after Anil Ambani owned Reliance Communications called off its merger with Malaysia’s Maxis Group promoted carrier’s Indian telecom arm Aircel.

"Merger agreements with Aircel allowed to lapse by mutual consent," RCom said in a statement released Sunday evening. The reason given was ‘inordinate delays caused by legal and regulatory uncertainties, various interventions by vested interests, policy directives impacting bank financing for telecom and changed industry dynamics.’

“"This is certainly not a good situation, with the M&A policy being there, the merger should have been much faster,” said Prashant Singhal, TMT leader for emerging markets at EY, adding that the merger was announced more than a year ago.

The industry’s debt, a substantial amount from spectrum purchases, presently stands at Rs 5 lakh crore. Major telcos have already sought larger relief from the government, which on Friday increased the period to payback the installments in 16 years, instead of present 10 years. The interest rate on penalties on late payments has also been lowered by 2-3%.

“The government has already done the debt restructuring (deferred payments), the other things that government should do is what Trai has already recommended - redefinition of AGR, SUC reduced to 1%, get rid of license fee, this double taxation issue where you spectrum charges upfront and then take revenue share... these are the systemic issues that the government has to address to the get the industry back on its feet,” Mathews added.

But former Airtel chief executive officer Sanjay Kapoor said that for any company to survive in the Indian market’s intense competition, the most critical requirement is to have deep pockets to not only fight the competition but also generate revenue.

“It's a foregone conclusion that you need a a deep pocketed player to withstand the sort of environment that exists in telecom today and the transformation (to 5G) that the industry will face in future. Given that the industry has taken a turn permanently to move from perfect competition to oligopoly. Any players who do not fit into that oligopolistic environment where 3-5 players will exist, will not find a sustainable business case on their own,” Kapoor said.

“This merger not happening is bad news for both RCom and Aircel, because given their size and resources, they might find it very difficult to find a sustainable business model in this business environment, and also providing any transformational experience to customers,” he added.